Coronavirus Pandemic and Your Investments. To Sell or Not to Sell?

Welcome to our first quarterly newsletter. Being a family run business we are constantly monitoring the way we work and the service we provide to both our existing and potential clients.    Just lately, we have seen an increase in the number of clients that have questions or concerns about recent news headlines, so we have decided to put together a newsletter that contains some information on a number of different topics, including updates on market movements, outlooks for the future, Brexit and currency rates. The aim of this update is to keep clients informed as much as possible, and to hopefully answer some of their questions along the way. Global Markets From an investment point of view, one of the biggest talking points this quarter was the dramatic fall in global indices at the start of February. This was instigated by the biggest ever one day fall in the Dow Jones Industrial Index (US), which plunged 1,175 points in one day of trading. Fears of interest rate rises in the US, aimed at taming inflation, was the key component in this dramatic turn of events. Official US figures turned these concerns into a huge Wall Street sell-off, after they showed average wage rises in the US had reached 2.9%. This data increased fear that shop prices would soon rise further, increasing the pressure for high interest rates to calm the economy down.  This newfound market volatility had shattered what had been a long period of stability and mounting value. As many might expect, when a country as politically big and powerful as the US has a mini crisis, this ripples through and has an effect on markets globally. The FTSE 100, which is the top 100 companies in the UK, posted its worst one-day performance since April 2017 in wake of the US problems. Indices also fell in Europe and Asia. The FTSE 100 is an important index for people that have investments in Sterling, as this and the FTSE All share index are often used as a benchmark by many investment houses in the UK, to compare the performances of their fund Unfortunately for the FTSE 100, the first quarter of 2018 makes for some pretty grim reading. Figures show that the FTSE has posted its worst quarter since the financial crisis in 2008, to begin the year. The index dropped as much as 8% in the first 3 months of 2018; an index which is generally regarded as one of the more stable indices in the world. A combination of the global sell-off mentioned above, uncertainty about BREXIT and a weaker Dollar pushed the index down. Aside from this, we have also seen the news of a possible trade war between the USA and China, after Donald Trump announced that the US will impose new tariffs on imports from China. Stocks around the world dropped sharply following this announcement but have since risen slightly, after Trump appeared to step back from these comments. Then there is Russia. Just like Kim Jong-Un, Vladimir Putin never seems to be too far away from the news headlines, and never more so than in recent months. With overwhelming speculation that the Kremlin were behind the Salisbury poisoning of Mr Skripal and his daughter in the UK, and the friction created between the US and Russia over the chemical weapons attack in Syria on the 7th April, Russia finds itself in a very hostile environment with the rest of the world. Although these events haven’t had a huge impact on  stock markets up to this point, it has created a lot of  disharmony between world leaders, something which    strikes fear into the general public.     Outlook for coming months/ Brexit In theory, by the end of 2018 we should know the terms of Brexit and even whether the endeavour will actually go ahead. If this happens in reality, is yet to be seen. What we do know for sure however, is that Brexit is providing a major drag on the stock market, as UK companies and foreign firms with UK operations are deferring investments until there is a greater understanding of what the EU’s and UK’s relationship will look like, after Britain leaves the EU. When we spoke to David Coombs, the Head of Multi-Asset Investments at Rathbone Investment Management, he said the following; “Fluctuations in Sterling (the Brexit barometer) have had a huge effect on UK investors since June 2016. We think that will continue. Recently, Sterling has become a much harder game to play. We think that, on a long-term view, Sterling is significantly undervalued, but a lot can happen in the shorter term”. When asked about their views for markets generally moving forward, Rathbone replied with the following; “We believe changing monetary policy currents, combined with a more combative political mood, will cause more turbulence in asset markets. Despite the greater turbulence, we are still optimistic about equities because we believe the chances of a recession in the US or China are remote”. Since February, we have seen a decline in fund performance throughout the investment companies we use, something which is almost inevitable when global markets crash in a “market correction”. However, our feeling here at Logic is that markets have now stabilised and the effects of the US Sell-off in February have now taken their full effect. On a positive note, we have seen these global indices steadily creeping back up since the end of March, the FTSE 100 in particular. We are aware, however, that until anything is decided for definite with regards to the Brexit deal, there will continue to be volatility throughout the market, arising from the uncertainty talks are bringing. Furthermore, the potential changes in interest rates being discussed in the UK and US could also add their weight to financial market movements. Having spoken to not only Rathbone, but also to a number of other investment houses, the general consensus is that equities are still favoured over bonds, and that there is potential for some good growth in this asset class for the foreseeable future. As always, Logic will continue to monitor markets and performances of funds and will recommend any changes to their clients’ portfolios if they feel it necessary. In other news, there is some speculation that the Technology bubble that has been rising higher and higher in recent years may be about to burst. The majority of this speculation seems to have been brought on by Facebook’s problems with the sharing of its user’s data to third parties. Mark Zuckerberg, the CEO of Facebook, has since taken full responsibility for this mistake and a 3 year plan to prevent these issues from happening in the future, has been set up. From our point of view, we feel that living in a world where Technology is becoming increasingly depended upon in almost every sector, there is little chance that Technology will plunge. Although individual companies may suffer their own internal problems from time to time, the technology sector as a whole should still remain strong. Currency Exchange Since the start of the year, we have seen the pound strengthen against many of the major global currencies. For many clients living in Spain, the exchange rate between GBP and EUROs is extremely important, especially when they are receiving income from the UK. At the start of January, the exchange rate between GBP/ EURO was 1/1.125, and since this date we have seen the exchange rate increase to a Brexit high of 1/1.156, as of the 17th April. This increase has been steady, despite the mixed data released in the press. The Office for National Statistics (ONS), has shown that the UK’s average weekly earnings, excluding bonuses, matched expectations, arriving at 2.8% 3m y/y versus 2.6% last year. The official jobless rate fell lower to 4.2% in February, while the claimant count change increased more than expected. The number of people claiming jobless benefits rose by 11,600 in March; a lot higher than the prediction of a 5,000 increase. The Bank of England has said it expects the fall in unemployment to start pushing up pay more quickly, which could be one of the main reasons why a rise in interest rates happens quicker than previously thought. On the flip side however, UK inflation has dropped to a one year low, which has cast doubt over this possible rise in interest rates. Similar to the EURO, the pound has been strengthening against the Dollar too. At the turn of the year 1 British pound would get you 1.35 USD, but this has shifted significantly and now 1 British pound would buy you 1.43 USD (17th April) Qualifications & Regulation   It has come to our attention in recent months that there are a number of Financial Advice companies advertising on the mainland, and in the Canaries, claiming to be fully qualified and regulated. Unfortunately, some of these companies have very limited permissions, or none at all in some cases. In the first instance, you need to ensure that the company you are dealing with is regulated. This is extremely important and provides you with a level of protection. Equally important, however, is that the individual sitting in front of you, and providing the advice, is fully qualified. To check to see if a company is regulated is fairly straightforward. On any advert or marketing material, an advice firm will always state their registration number as well information on where and who they are regulated by. Typically, the regulation will come from either the FSC in Gibraltar, the FCA in the UK and either the DGS or the CNMV in Spain. Any advert without this information is likely to be from an unregulated entity. You are also able to see if an adviser is qualified to UK standard, which many claim to be. To do this, you can go to www.cii.co.uk, and click on member search. When searching for an individual, they should have the designation DipPFS next to their name, which means they have reached Diploma status. If they do not have this next to their name, they are not qualified to UK standard. At Logic, we are proud to have two fully qualified advisers working in our family-run business. Ian and George have both completed the Diploma in Regulated Financial Planning. Being a family business, we pride ourselves on delivering easily understood, tax efficient solutions for expats living in Spain. You are safe in the knowledge that the advice you are receiving is from fully qualified individuals and a fully regulated business. Logic are a trading style of Tourbillon Limited, regulated by the Gibraltar Financial Services Commission (Registered Number FSC1118B). Under our network, we are also registered with the FCA in UK and both the DGS and CNMV in Spain.